Arbors at Sugar Creek Homeowners Ass'n v. Jefferson Bank & Trust Co.

Richard B. Teitelman, Judge,

dissenting.

I respectfully dissent from the principal opinion to the extent it holds that Jefferson Bank’s actions.did not violate the implied covenant of good faith and fair dealing. 1 “Good faith is an ‘obligation imposed by law'to prevent opportunistic behavior, that is, the exploitation of changing economic conditions to ensure gáins in excess of those reasonably expected at the time of contracting.’ ” Frontenac Bank v. T.R. Hughes, Inc., 404 S.W.3d 272, 280 (Mo.App.2012) (quoting Schell v. LifeMark Hospitals of Missouri, Inc., 92 S.W.3d 222, 230 (Mo.App.2002)). Missouri courts have recognized that a party engages in bad faith by utilizing contract language allowing unilateral action to improperly deny the other party expected'benefits flowing *190 from the contract. Koger v. Hartford Life Ins. Co., 28 S.W.3d 405, 412 (Mo.App.2000) (citing Martin v. Prier Brass Mfg. Co., 710 S.W.2d 466, 473 (Mo.App.1986) (exercising judgment “conferred by the express terms of agreement in such a manner as to evade the spirit of the transaction or so as to deny the other party the expected benefit of the contract” violates the duty of good faith)). More specifically, Missouri courts have found bad faith when a developer amends a subdivision’s declaration through a “devious attempt to circumvent” the intent reflected in that agreement. Rocky Ridge Ranch Property Owners Ass’n v. Areaco Investment Co., Inc., 993 S.W.2d 553, 556 (Mo.App.1999).

The principal'' opinion distinguishes Rocky Ridge on grounds that. Jefferson Bank’s actions in this case did not amount to a “subterfuge.” I respectfully disagree and would hold that, despite the factual distinctions, Jefferson Bank’s actions in this case are functionally equivalent to the actions in Rocky Ridge. The original Indenture provided the homeowners with the significant benefit of splf-governance of the subdivision ’ by establishing that only residents could hold office on the neighborhood association’s board of directors. The Indenture went on to note that the underlying purposes included ensuring a general plan of development for the “mutual.benefit” of all owners and the participation of “every Owner” in the governance and administration of the neighborhood. The Indenture ensured this participatory governance by specifying that the board of directors would consist entirely of residents of the subdivision. As a result, when the homeowners purchased their homes and Jefferson Bank subordinated its deeds of trust to the Indenture, all parties held a reasonable expectation that the neighborhood association would ultimately be governed by a board composed solely of subdivision residents.

Jefferson Bank’s actions in amending the Indenture amounted to using its sudden majority status to unilaterally transition from the mutually beneficial participatory governance envisioned in the original Indenture to the exercise of authority for its own benefit. The evidence supports this conclusion. For instance, at trial, Jefferson Bank’s-president testified that “our interests are different” from those of the homeowners. He further testified that Jefferson Bank’s interests were “short term.” In’ other words, “[t]he market has spoken ... the market spoke that it wanted a different kind of home [in the subdivision].” Jefferson Bank’s actions, as clarified by the president’s testimony^ leaves little doubt that Jefferson Bank leveraged the fallout of the Great Recession to circumvent the mutually beneficial purposes of the Indenture to satisfy its short-term financial interests.

• I would reverse the judgment granting declaratory relief to Jefferson Bank.

. This dissent follows the rationale of the court of appeals opinion authored by the Honorable Lisa Van Amburg.